Korea Inflation

Korea: Inflation drops in December

December 30, 2010

In December, consumer prices rose 0.60% over the previous month, contrasting the 0.59% drop recorded in November. The monthly rise was driven by higher prices for transport (+1.84% month-on-month) and for food and alcoholic beverages (+0.95% mom). As a result of the price increase, annual inflation stepped up from 3.3% in November to 3.5%, coming in above market expectations that inflation would end the year at 3.3%. Inflation ended the year above the Central Bank's inflation target of 3.0% but remained within the tolerance range of 1.0 percentage points. The core inflation index, which excludes more volatile items such as fresh food and energy, added 0.35% over November, pushing annual core inflation from 1.8% in November to 2.0%. Meanwhile, the government unveiled a set of measures meant to fight inflation, aimed in particular at curbing the pick-up in prices of agricultural and petroleum products. According to a statement released by the Ministry of Strategy and Finance, the government will reduce custom tariffs on relevant products, to reduce the impact of the increase in international commodity prices. The government will also boost supply both of foodstuffs and of oil products, on the one hand by recurring to extra-supply held in reserve, on the other hand by increasing imports. Moreover, authorities will freeze prices in public services, such as electricity, gas and postal services. Finally, the government will monitor prices at a local level and respond ?with severity? to ?illegal price-setting practices?.

Author:Armando Ciccarelli, Head of Data Solutions

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Industrial production in the mining, manufacturing, gas and electricity sectors decreased 6.0% in December compared to the same month last year, more than the revised 1.7% decrease in November (previously reported: -1.6% year-on-year).